Goldman names 23 'unloved' defensive stocks as tech falters
Goldman Sachs recommends consumer-facing stocks, saying energy prices and interest rates will fall next year / Photo: pimpampix / Shutterstock
As tech stocks wobble, investors should focus on buying stocks in sectors that have lagged, Goldman Sachs strategists have advised clients, as MarketWatch reports. The S&P 500, dominated by large tech companies, last week posted its worst weekly return since late June.
Details
Goldman Sachs strategist Ben Snider has identified 23 healthcare and consumer staples stocks in the Russell 1000, an index of the 1,000 largest publicly traded U.S. companies, that he believes investors should consider now. They combine relatively low realized share-price volatility with high free cash flow yields versus sector peers, Seeking Alpha notes. Snider also highlighted consumer-experience companies, which sell travel and entertainment or operate hotels and restaurants, citing their relatively low valuations and exposure to strong long-term secular growth.
Rationale
Snider expects energy prices and interest rates to come down next year, accelerating real income growth. “In particular, our economists expect that income growth for the bottom income quintile will accelerate notably in 2027 as inflation slows and January cost-of-living adjustments boost transfer payments,” he explained. Goldman Sachs strategists led by Snider also noted that Wall Street hedge funds’ exposure to consumer discretionary companies is at multiyear lows. At the same time, the funds are trimming their holdings of AI-related stocks, MarketWatch reports.
Against this backdrop, Snider and his team suggest focusing on stocks in defensive sectors with “quality” attributes. Goldman’s basket of consumer discretionary stocks exposed to lower-income consumers has rallied 7% since the beginning of October.
Goldman's 'unloved stocks'
Tyson Foods, a food producer (rated “hold” by eight of 16 analysts, with a neutral average Wall Street rating)
Royalty Pharma, a biopharma royalty buyer (rated “buy” by eight of 10 analysts)
CVS Health Corporation, a pharmacy chain and health insurer (rated “buy” by 25 of 27 analysts)
J.M. Smucker Company, a food producer (rated “buy” by 10 of 19 analysts)
Kroger, a supermarket chain (rated “buy” by 14 of 26 analysts)
Cardinal Health, a drug distributor (rated “buy” by 16 of 21 analysts)
HCA Healthcare, a hospital operator (rated “buy” by 15 of 29 analysts)
Hormel Foods Corporation, a meat producer (rated “hold” by seven of 10 analysts)
Performance Food Group, a foodservice supplier (rated “buy” by 13 of 16 analysts)
Sysco Corporation, a foodservice distributor (rated “buy” by seven of 14 analysts)
Kenvue, a consumer health products maker (rated “hold” by 12 of 14 analysts)
Hershey Company, a confectionery giant (rated “hold” by 14 of 23 analysts)
US Foods Holding, a foodservice distributor (rated “buy” by 13 of 18 analysts)
Merck & Co., a pharmaceutical company (rated “buy” by 21 of 31 analysts)
ResMed, a medical device maker (rated “buy” by 18 of 30 analysts)
Quest Diagnostics Incorporated, a medical laboratory operator (rated “buy” by nine of 17 analysts)
Chemed Corporation, a home healthcare provider (rated “hold” on average by Wall Street analysts)
Abbott Laboratories, a medical device maker (rated “overweight” on average, with analysts generally recommending "buy")
Mondelez International, a snack maker (rated “overweight” on average)
McKesson Corporation, a drug distributor (rated “overweight” on average, with Wall Street broadly upbeat on the stock)
Church & Dwight, a household products maker (rated “overweight” on average)
AbbVie, a biopharma company (rated “overweight” on average)
Colgate-Palmolive, a personal care products maker (rated “overweight” on average)
What else does Goldman say?
The S&P 500, dominated by large tech companies, last week posted its worst weekly return since late June, MarketWatch notes. Its performance has increasingly diverged from that of the average stock for months, but the gap began widening rapidly in September. Growing concerns about the cost and availability of debt financing for AI-related companies have prompted investors to cut their exposure to those stocks and price in slower earnings growth, Goldman believes.
Goldman’s strategists nevertheless expect solid earnings per share growth in 2027. Their baseline forecast calls for S&P 500 EPS to rise 36% in 2026 before growth slows to 11% in 2027. They estimate that AI capex currently accounts for about half of EPS growth. That contribution is set to fade in 2027 as capex growth slows and depreciation expenses rise.
“In addition to pressure from interest rates and energy prices, slowing AI investment growth will be a fading tailwind,” the strategists said, adding that early third-quarter earnings reports support this view. Over the last four quarters, 64% of S&P 500 companies beat consensus EPS forecasts, but only 53% have done so in the third-quarter reporting season now getting underway.
